Article reprint source: TechFlow
By Marco Manoppo
Compiled by: TechFlow
During bull markets, our social media feeds are flooded with success stories of 100x gains (Hyperliquid, please stop). However, we rarely discuss the opportunities we missed.
In this post, I want to look back at the story of Virtuals Protocol, share how I engaged with the founding team in the early days, and how, as a venture capitalist, I missed my first 100x opportunity.
Note: Strictly speaking, the first 1000x opportunity I missed was participating in Solana’s seed round investment through an angel friend in 2019, but I was not a real investor at that time.
Disclaimer: I am an investor in @primitivecrypto (PV). While PV is not a traditional VC firm, we also make venture-like investments. The opinions expressed in this article are my own.
Virtuals is one of the biggest investment opportunities I missed in this cycle. The founding team first contacted me in July (during ETHCC) when their fully diluted valuation (FDV) was only $50 million. Before that, I actually heard about this project through mutual friends in Q1, when their valuation was even lower. Fast forward six months later, this AI agent tokenization platform has become one of the focus of the current cryptocurrency cycle.
Virtuals co-founders Jansen and Wee Kee have certainly shown remarkable perseverance.
I vividly remember them tirelessly introducing Virtuals to investors and industry insiders. As they were mostly based in Southeast Asia (SEA), I heard from some crypto friends about their rebranding from the PathDAO days and their theories on tokenizing AI agents. The perseverance to keep pushing the project forward despite the bear market and no major centralized exchange (CEX) listings was admirable. Many other founders would have returned the funds or abandoned the project long ago, but the Virtuals team persevered and returned to the market stronger.
Why do I make bad decisions?
Earlier this year, we saw a lot of projects combining crypto and AI trying to achieve decentralized computing or reasoning. Frankly speaking, many of these projects are just empty talk. Most of them don't have an effective way to really attract ordinary users to participate. Sure, you may get some airdrops by joining the network and running some calculations, but these are far less attractive to large-scale ordinary investors like GameFi or DeFi's pool2 model.
At first, I thought these projects would use some kind of gamification to collect unique data, combined with consumer-centric applications to make the experience more unique - perhaps with some elements of "Ponzi economics" thrown in. After all, data is still the core of any AI model; and using "free internet currency" to incentivize people to share unique data seems to be a perfect way to do it.
Remember (Westworld) Season 3?
However, it turns out that the crypto market is polarizing. We skipped the content I just mentioned and entered the asset issuance stage - which is still the most important product market fit (PMF) in the cryptocurrency field.
The Virtuals team, with all their previous efforts, was well-suited to seize this opportunity.
The emergence of the GOAT
It is often said that luck is what happens when preparation meets opportunity.
I don’t need to go into detail here about what GOAT is; if you’re not familiar with the phenomenon, here’s an explanatory article. In short, GOAT sparked the craze about AI agent tokens because it got the market imagining what’s possible when AI agents can interact with a currency. While GOAT has some limitations, such as requiring a certain level of human intervention, the key point is that it has made people believe that when AI agents meet cryptocurrency, it will open up a whole new field of experimentation.
Recognizing the opportunity, the Virtuals team moved quickly to demonstrate their technical prowess.
Their tokenized AI agent, LUNA, went live on October 16, just a week after GOAT. If you know anything about the crypto industry, you know that being a “beta of the protagonist” is not enough. Over a breakfast meeting in Bangkok, Jansen told me that the Virtuals team sprinted to make LUNA the first AI agent that can conduct autonomous on-chain transactions.
Reflection: How to seize winning opportunities in the crypto market?
Reflection is always subjective, but here are some of my takeaways:
Tenacity: The Virtuals team has demonstrated remarkable perseverance by continuously iterating on their product. While this varies from founder to founder based on their background and motivations, investing in teams that don’t give up easily, remain highly ambitious, and stay abreast of market trends is key.
Geographical advantages and rapid experimentation: Typically, projects that attempt rapid experimentation (such as platform or launchpad models) have difficulty succeeding in Western markets due to higher costs. The Virtuals team, being located in Southeast Asia, is able to iterate quickly at a lower cost while benefiting from a user base and capital markets denominated in US dollars.
Resilience and pragmatism: The strengths of Southeast Asian founders lie in their resilience and pragmatism. The business culture in the region has always focused on "pragmatism first", whether it is traditional business, Web2 or the crypto industry, it is to localize the successful experience of the Western or Chinese market. This pragmatic and business-oriented way of thinking is fully reflected in the Virtuals team.
What are the future trends?
The AI agent craze has only lasted about two months, but I feel like I've been through two years of it. Although the market has shown some fatigue, I believe that by 2025, we will see more AI crazes combined with cryptocurrency. Innovation in the crypto industry often starts from the most enthusiastic areas and gradually develops into more mature practical application scenarios.
One fact that cannot be ignored is that without cryptocurrency, AI experiments will be greatly limited.
This is especially true in experiments with AI agents. Just imagine, you can’t give a random AI agent access to real capital in the traditional financial system (TradFi) unless you have a bunch of documents and lawyers ready to support it. Let alone handing cash directly to an AI agent. Cryptocurrency, as a purely digital form of currency, provides the most suitable carrier for these experiments.
Therefore, experiments with AI agents will gradually evolve from simple functions (such as a GPT wrapper that can tweet, valued at $100 million) to more interesting application scenarios. Here are some of the directions I personally look forward to:
More AI agent tokenization frameworks and platforms: Although the Virtuals team has been launching new products at a rapid pace, there is still a lot of room for competition in the market. For example, platforms like @ai16zdao, @MoemateAI, @Spectral_Labs, and @griffaindotcom have begun to emerge and gradually occupy market share.
Niche AI agent experiments: Some projects (such as @freysa_ai, @aiwdaddyissues, and @Big_Pharmai) demonstrate more niche experiments and application scenarios. The key to these projects is how to develop from an interesting experiment to a real protocol with long-term commercial value.
Crypto x AI applications for consumers: How can you turn AI agents into practical applications that appeal to consumers while keeping them unique and innovative? This can even be combined with other AI products such as data collection, model training, or inference services. The key is to make the experience of using AI agents both novel and practical.
Combining AI agents with “side jobs”: I dare not predict too much here, but it is foreseeable that in the future, more AI agents will create new products by participating in certain “side jobs” fields (such as gambling, adult industry, etc.) Significant cash flow without relying solely on token issuance or crypto market transactions.
Integration of AI agents and payment systems: As the ability of agents to interact with each other improves, we can explore how to use AI agents to achieve a more seamless on-chain and off-chain payment experience, thereby optimizing the payment process.
When faced with community-driven innovation, the traditional venture capital mindset can sometimes seem limiting. The core of learning is to remain open to new experiments, not be bound by traditional ideas, and be able to adapt quickly, rather than blindly pursuing ideals. Primitive is always looking for brave founders. If you are looking into any of the above directions, please contact us!
